FleaBagger (28.08)

How to profit from macroeconomic armageddon

6

A recent Fool.com article speculated on possible reasons Miscrosoft (MSFT) might be hoarding cash. Was it a joke? These are times when cashless companies are going to go out of business or, if large and well-connected enough, get nationalized by our emperors in Washington. If we don't go outright socialist (or Nationalist Socialist), this will be a huge opportunity for companies with cash on hand. Warren Buffett achieved >25% CAGR of Berkshire Hathaway's book value for about half a century, growing $7/share into six figures per share, using precisely the same method that will be ridiculously easy for the next couple of years: buy companies and their assets at 50%, 60%, 70%, or even 90% off. And not 90% off their 52-week highs, which may have been more than 10 times too high in the first place, but 90% off their real value. Some of those deals are coming.

I'm not being Pollyannaish. Quite the opposite. I'm saying that companies will be trading at 90% off their real value because everybody will be jobless, nobody will be buying anything except their daily bread, and 95% of the companies in America, large and small, financial and otherwise, will go out of business. Everybody dependent on an employer will have to grow a survival garden in their yard. Every company dependent on credit will sell all to a cash-rich company for pennies on the dollar, unless their balance sheet contains toxic debt, in which case they won't get even that.

If you like eating and you don't already own a cash-rich company, buy enough canned food to last you for a couple of years. Buy a gun and plenty of ammo. Buy some gold and silver (not through ETF's or financial institutions). If you're feeling particularly adventurous, try to find some Chinese companies that don't export anything to the U.S. and buy those, too. (Personally, I own Jinpan International [JST] and a few others.) Batton down your own hatches, and if the worst never comes, we can laugh about it, the way those Y2K nuts did in 2000, as they were selling their extra toilet paper on eBay. If the worst happens, you will want to be prepared.

My point was that everybody needs to be hoarding cash (and canned goods, etc.), and that speculating on why MSFT wants to hoard cash is like speculating on why a bear is storing up extra body fat in the fall. (What are his motives?) You think it's a bit chilly now? Winter is coming.